Debit or Credit? (A College Student’s Guide)

Have you ever wondered what’s the difference between paying something with a debit card versus a credit card? Though they are both as plastic as Pam Lee, the truth is that there are several crucial differences between the two, and every new college student needs to know the differences before they end up waking to a beastly amount of debt.

Debit cards are linked to your bank account, and withdraw directly from it. It’s money that you have. You can overcharge a debit card if you are signed up for “withdrawal protection.” If you withdraw more than you have from your debit account, you will get fined with an overdraft fee, and you will also have to pay an extra fine for every day your account stays in the red. This can quickly become a huge issue, so it’s important to pay attention to your balance. Oddly enough, though this can seriously hurt your wallet, it won’t hurt your FICO score too much when compared to a late payment on a credit card.

Charging a credit card, on the other hand, is basically borrowing someone else’s money in order to pay for the good. At the end of the month, you will have to pay a portion of the amount you owe back. This, too, can have its trap in the allure of “free money.” It’s best not to retain a balance on your credit card for this reason. Also, you have to think about the interest that you will need to pay on every “loan” you take from your credit card. For a typical card, you can have anywhere from 11% to 21% interest per year. That means that by the end of the year, that $100 dress will have cost you $121.

It’s good to have a strategy when it comes to handling money via plastic. If you are not sure whether or not you have enough money for a payment in your bank account, it’s crucial to make sure that you don’t pay the overdraft fees. In these cases, choose your credit card. You might end up avoiding anywhere from $20 to several hundred dollars in fees, depending on when you discover your error. In all other cases, it’s a good idea to choose your bank account over your credit cards. After all, you don’t want to have to pay extra for that latte, do you?